Why do online pirates continue to sail the web?

Content creators and sellers have been in a long battle to compete with online piracy.

abby m, file photo: www.sxc.hu

Just what would it cost to scuttle online pirates?

The short answer is no one seems to know, but at a rough guess somewhat less than the $1.4 billion copyright holders say piracy is costing them each year in Australia could make a serious impact.

The $1.4 billion figure came from a study commissioned by the Australian Federation Against Copyright Theft (AFACT) back in 2011.

It has presumably risen since then, given the torrent of downloading going on with the popularity of subscription-only TV phenomena such as Game of Thrones.

Even if the costs have not risen, that is about $4 million a day that copyright holders and content makers say they are losing to piracy in Australia.

Faced with losses of that size, it is extraordinary that nothing of any substance has been done and that grinding hostility rather than compromise is the preferred model to tackle the problem.

'Sliding Doors'

In movie parlance, there was a Sliding Doors moment two years ago; a moment of 'what if' a different path had been taken when an opportunity for copyright holders and internet service providers (ISPs) to work together was last seriously addressed.

Throughout 2012 the copyright holders and the ISPs had been working with the Attorney-General's Department on a trialling a voluntary scheme to at least limit online piracy.

On one side of the round table forum were groups such as AFACTS, now the Australian Screen Association and the Australian Home Entertainment Distributors Association (AHEDA).

On the other, the ISPs were represented by the Communications Alliance as well as individual telcos, such as Telstra, Optus and iiNet.

The telcos also had an interest in arresting the piracy with their investment in subscription TV - Telstra through Foxtel, and Optus and iiNet with Fetch TV.

The 18-month manual trial was designed to evaluate the so-called graduated response policy, where illegal downloaders would be identified and sent warning notices of increasing explicitness.

Collecting and retaining additional customer data at this level is inappropriate, expensive and, most importantly, not our responsibility.

iiNet chief regulatory officer Steve Dalby

A public education office was also going to be established.

CEO of the Communications Alliance John Stanton says, in informal discussions, the content owners were going to fund the bulk of the trial, a bit more than $1 million, while the ISPs were going to kick in $250,000.

AHEDA chief executive Simon Bush says during the roundtable discussion no agreement had been made regarding costs.

The one thing both sides agreed on is that it was not going to cost a lot, relative to either the size of the problem or the size of the individual businesses; perhaps only an extra full-time position or two per company and certainly nothing like the cost of a full day's piracy.

If successful, an automated scheme would be introduced. While that would involve higher capital costs of building the technology, over time the running costs would arguably be lower.

The Communications Alliance argued that recent global research indicated that approximately 70 per cent of infringers would stop pirating content if they received a warning notice saying that their activity had been detected and may be illegal.

In its discussion paper it said, "if a notice scheme in Australia succeeded in changing the behaviour of even two-thirds of casual infringers, this should generate an annual economic uplift to rights holders at least in the order of $420 million per annum (i.e. $900 million x 70 per cent x 2/3)."

That rises to $650 million per year if you use AFACT's $1.4 billion figure.

The alliance concluded: "A small fraction of this economic value would be more than sufficient to fund the initial establishment and primary operating costs of the scheme."

Needless to say, the trial collapsed in a bickering and finger pointing heap.

Frosty relations

Australia's third-biggest ISP, iiNet, walked out arguing the rights holders were asking ISPs to enforce copyright while ignoring what it says is the root of the problem: "The limited accessibility to desirable content and the discriminatory and high cost of content in Australia."

The fiercely independent iiNet had just been through years of litigation with movie and TV studios, ending with a definitive victory in the High Court.

That case set the precedent that ISPs could not be held responsible for what their customers do with the internet, or as iiNet argued, it was not the "copyright police for the rights holders."

Explaining the company's decision to bail out on the trial, iiNet's chief regulatory officer Steve Dalby also fingered data retention as another reason not to participate.

It makes no sense to me that rights holders were unwilling to make a modest investment to fix what they say is a multi-billion dollar problem.

Communications Alliance CEO John Stanton

"iiNet won't support any scheme that forces ISPs to retain data in order to allow for the tracking of customer behaviour and the status of any alleged infringements against them," he wrote in a blog at the time.

"Collecting and retaining additional customer data at this level is inappropriate, expensive and, most importantly, not our responsibility."

Once iiNet walked, the trial was doomed. For, in an industry vulnerable to customer churn, a company not participating in the anti-piracy campaign would enjoy a serious competitive advantage.

The Communications Alliance's CEO John Stanton says, at that stage, enforcement by ISPs was not on the table and that the rights holders agreed there should not be sanctions such as disconnecting services or throttling broadband speeds.

Mr Stanton says the ISPs agreed to be responsible for the notices and the sticking point was purely the dollars.

"If rights holders had been willing to reimburse the reasonable costs that ISPs would have to incur to run the processes – IP address matching, processing and sending notices among them – I am confident a graduated response trial could have gone ahead two years ago," he said.

"It makes no sense to me that rights holders were unwilling to make a modest investment to fix what they say is a multi-billion dollar problem."

AHEDA's Simon Bush said there had never been an opportunity to discuss costs before iiNet walked out, but that each side should be responsible for their own costs.

UK model

Recent reports out of the UK suggest a deal between the entertainment industry and ISPs is about to be struck with a cost model not dissimilar to that envisioned in Australia back in 2012.

The BBC has reported ISPs will soon start sending alerts to customers believed to be downloading illegally.

Britain's national broadcaster says rights holders have agreed to pay about 75 per cent of the individual ISPs' costs, up to £750,000, to set up the system.

They reportedly will also foot 75 per cent of the bill, up to £75,000, to cover an ISP's annual costs of administering the scheme.

Earlier modeling suggested that warning letters would cost rights holders about £17, or about $30, for each notice.

Government's response

A voluntary scheme for Australia no longer seems to be an option.

Attorney-General George Brandis has signaled a willingness to impose a regulatory framework, if the stakeholders cannot work together.

His options are said to range from the graduated response model through to getting ISPs to block file sharing websites, probably none of which worries serious pirates.

They have already moved on to encrypted tools such as Cyberlockers and Virtual Private Networks (VPN) to cover their tracks, rather than easily traceable peer-to-peer downloading via BitTorrent and its ilk.

The better bet for content holders may be to adapt their business models for this digitally disruptive age.

Perhaps pinch some of the pirates' own weaponry, such as distributing content via VPNs or, perish the thought, pushing their content out more quickly and cheaply, making the lure of illegal booty less appealing.